Chapter 6: Problem 10

If the United States is a net importer of a product that is being subsidized or dumped by Japan, not only do U.S. consumers gain, but they also gain more than U.S. producers lose from the Japanese subsidies or dumping. Explain why this is true.

Short Answer

Expert verified

U.S. consumers gain more from Japan's subsidies or dumping because they can purchase products at lower prices. Although U.S. producers might face losses due to lower market prices, the overall gain to consumers generally outweighs the producers' losses because they are based on larger quantities. Thus, the net effect of such practices could lead to a positive economic benefit for the U.S.

Step by step solution

Define Key Concepts

Net Importer: When a country imports more of a product than it exports, it is a net importer. Subsidy: Financial aid from a government to benefit a specific economic sector. Dumping: The act of selling goods in another country at a price below the cost of production. In this case, the United States is a net importer of certain products from Japan whereby Japan either subsidizes these products or dumps them into the US market.

Analyzing the Effect on Consumers

When Japan subsidizes or dumps a certain product into the U.S. market, the price of that product becomes cheaper. This benefits U.S. consumers because they can now purchase that product for less. This is considered a consumer surplus, as consumers are getting the product at a price that is less than what they are willing to pay.

Analyzing the Effect on Producers

While U.S. consumers benefit, U.S. producers face a challenging situation. The cheaper, imported products from Japan mean that U.S. producers have to either lower their prices to stay competitive or lose market share. This scenario is harmful to the producers and might cause impairment to their financial state. This is their producer's loss.

Comparison between Consumers' Gains and Producers' Losses

Lastly, it is important to understand that the total gains of consumers could outweigh the total losses of producers. This case is possible because consumers have more quantity to benefit from lowered prices as compared to producers, whose losses are minimized to the quantity they produce and sell. In cases where the subsidized or dumped product is something consumed on a large scale, the gains by consumers could indeed be far greater than the losses by producers.

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